Relate to interest rate risk-premium bonds-discount bonds

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Reference no: EM131286265

Tarek Corporation bonds pay $100 in annual coupon, with a $1,000 par value. It will mature in a 5 years. The current bond yield in the market is 12 percent for the maturity of 5 years for Tarek.

Required:

a. Calculate the value of the bond.

b. How does the value change if the bond yield (1) increases to 15% or, (2) decrease to 8%.

c. Explain the implications of your answers in part (b) as they relate to interest rate risk, premium bonds and discount bonds.

d. Assume that the bond matures in 15 years instead of 5 years. Recalculate your answers in part (a) and (b).

e. Explain the implications of your answers in part (d) as they relate to interest rate risk, premium bonds, and discount bonds.

Reference no: EM131286265

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